Question

Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 1,000,000 units. Quarterly sales are 18%, 23%, 23%, and 36%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $43 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 490,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.

PARGO COMPANY Sales Budget                                                           December 31, 2017For the Quarter Ending December 31, 2017For the Year Ending December 31, 2017
	Quarter
	1	2	3	4	Year
Expected unit sales
Unit selling price	$	$	$	$
Total sales	$	$	$	$	$

PARGO COMPANY Production Budget                                                           For the Year Ending December 31, 2017December 31, 2017For the Quarter Ending December 31, 2017
	Quarter
	1		2		3		4		Year
Desired Ending Direct MaterialsBeginning Direct MaterialsExpected Unit SalesBeginning Finished Goods InventoryRequired Production UnitsTotal Materials RequiredDirect Materials Per UnitDesired Ending Finished Goods InventoryDirect Materials PurchasesTotal Required Units
AddLess:                                                           Direct Materials PurchasesBeginning Finished Goods InventoryBeginning Direct MaterialsTotal Required UnitsRequired Production UnitsDesired Ending Finished Goods InventoryExpected Unit SalesDirect Materials Per UnitTotal Materials RequiredDesired Ending Direct Materials
Beginning Direct MaterialsRequired Production UnitsDesired Ending Direct MaterialsTotal Materials RequiredExpected Unit SalesBeginning Finished Goods InventoryDirect Materials Per UnitDirect Materials PurchasesDesired Ending Finished Goods InventoryTotal Required Units
AddLess:                                                           Required Production UnitsBeginning Direct MaterialsBeginning Finished Goods InventoryDesired Ending Finished Goods InventoryExpected Unit SalesTotal Required UnitsTotal Materials RequiredDirect Materials Per UnitDesired Ending Direct MaterialsDirect Materials Purchases
Direct Materials PurchasesExpected Unit SalesDirect Materials Per UnitDesired Ending Finished Goods InventoryTotal Materials RequiredTotal Required UnitsBeginning Direct MaterialsDesired Ending Direct MaterialsBeginning Finished Goods InventoryRequired Production Units

PARGO COMPANY Direct Materials Budget                                                           For the Year Ending December 31, 2017For the Quarter Ending December 31, 2017December 31, 2017
		Quarter
		1		2		3		4		Year
Desired Ending Direct MaterialsUnits to be ProducedTotal Required Direct Labor HoursTotal Pounds Required for ProductionDirect Materials Per UnitTotal Cost of Direct Materials PurchasesCost Per PoundDirect Materials PurchasesDirect Labor Cost Per HourTotal Direct Labor CostTotal Materials RequiredDirect Labor Time Per UnitBeginning Direct Materials
Total Cost of Direct Materials PurchasesTotal Direct Labor CostDirect Labor Cost Per HourBeginning Direct MaterialsTotal Materials RequiredTotal Pounds Required for ProductionDirect Labor Time Per UnitDirect Materials PurchasesTotal Required Direct Labor HoursCost Per PoundDirect Materials Per UnitDesired Ending Direct MaterialsUnits to be Produced
Beginning Direct MaterialsDirect Materials PurchasesDirect Materials Per UnitTotal Pounds Required for ProductionCost Per PoundUnits to be ProducedTotal Cost of Direct Materials PurchasesTotal Direct Labor CostTotal Materials RequiredDirect Labor Time Per UnitDirect Labor Cost Per HourDesired Ending Direct MaterialsTotal Required Direct Labor Hours
AddLess:                                                           Direct Materials PurchasesUnits to be ProducedTotal Direct Labor CostTotal Materials RequiredCost Per PoundDirect Labor Cost Per HourTotal Pounds Required for ProductionTotal Cost of Direct Materials PurchasesDirect Materials Per UnitDesired Ending Direct MaterialsBeginning Direct MaterialsDirect Labor Time Per UnitTotal Required Direct Labor Hours

Answer 1

Answer-   PARGO COMPANY

Sales Budget

For the Year Ending December 31,2017

Quarter
	1	2	3	4	Year
Expected unit sales	180,000 (1,000,000*18%)	230,000 (1,000,000*23%)	230,000 (1,000,000*23%)	360,000 (1,000,000*36%)	1,000,000
Unit selling price	$38	$38	$38	$43
Total sales	$6,840,000	$8,740,000	$8,740,000	$15,480,000	$

PARGO COMPANY

Production Budget

For the Year Ending December 31, 2017

	1	2	3	4	Year
Expected Unit Sales	180,000	230,000	230,000	360,000	1,000,000
Add:- Desired Ending Finished Goods Inventory (20% of net quarter sales)	46,000	46,000	72,000	39,600
Total Required Units	226,000	276,000	302,000	399,600
Less: Beginning Finished Goods Inventory	36,000	46,000	46,000	72,000
Required Production Units	190,000	230,000	256,000	327,600

Budgeted Sales of Qtr 1 2017	180,000
Growth in sales	10%
Budgeted Sales of Qtr 1 2018	198,000
Desired Ending Finished Goods Inventory 20% of Qtr 4 2017	39,600

Beginning Finished Goods Inventory	20% of Qtr 1,17 sales
Qtr 1,2017 Sales	180,000
20 % of 180,000	36,000

  PARGO COMPANY

Direct Materials Budget

For the Year Ending December 31,2017

	1	2	3	4
Units to be produced	190,000	230,000	256,000	327,600
Direct Materials per units in Pound	2	2	2	2
Total Pounds Required for Production	380,000	460,000	512,000	655,200
Add: Desired Ending Direct Materials (10% of next qtr requirements)	46,000	51,200	65,520	49,000 (490,000*10%)
Total Materials Required	426,000	511,200	577,520	704,200
Less:Beginning Direct Materials	38,000	46,000	51,200	65,520
Required Direct Materials	388,000	465,200	526,320	638,680
Cost Per Pound	10	10	10	10
Total Cost of Direct Materials Purchases	3,880,000	4,652,000	5,263,200	6,386,800